Despite dire predictions of revenue losses in the wake of a leaked U.S. spy agency’s electronic surveillance program three years ago, U.S. cloud providers have instead “out innovated” local competitors to keep a firm grip on the European market, a market watcher says.

The Information Technology & Innovation Foundation, an industry think tank, said at the time that “U.S. cloud service providers stand to lose somewhere between 10 and 20 percent of the foreign market in the next few years,” in an August 2013 report about the impact of the leaks by former NSA contractor Edward Snowden.

Its low-end estimate for losses by U.S. cloud providers was $21.5 billion over the next three years, as European and Asian competitors took advantage of stricter data privacy and protection rules in local markets. Its high-end estimate for losses was $35 billion.

Rather than lose market share, these firms nearly tripled their combined cloud-infrastructure revenue in the region to $2 billion, expanding their market share by a third to 40% in 2015, IDC reported earlier this week.

So what happened to those dire predictions?

ITIF Vice President Daniel Castro, who wrote the 2013 report, says U.S. firms simply outmaneuvered their local competitors, while continually upgrading products and services for customers across the region.

“Big U.S. companies knew there would be these issues and took action,” he told CIO Journal, adding that “no other company outside of the U.S. has been able to out-innovate U.S. firms.”

He said U.S. firms leveraged their scale to keep prices low, along with deep pockets to build at least a dozen new data centers in the region in recent years.

Those advantages simply outweighed concerns over data security and protection among their European customers, he added.

The assumptions in the 2013 report were based in part on the results of a survey earlier that year by the Cloud Security Alliance, an industry advocacy group. It reported that 10% of its non-U.S. members said they had cancelled a project with a U.S. cloud provider over the NSA leaks, while another 56% said they were less likely to use a U.S. provider in the future.

The report itself said “it is unclear how much damage will be done” as a result of the leaked spying program, since the regulatory response was still unfolding, the data was “thin” and perceptions were “evolving”.

Still, despite the success of U.S. cloud firms in the European market since then, Mr. Castro, a former IT analyst at the Government Accountability Office, maintains there is “no question” the leaks – and tougher data protection rules that followed – created opportunities for local competitors and held U.S. firms back.

“We never said there wouldn’t be growth [by U.S. cloud providers], but has growth been as robust as it could have been?” he asked. “It’s at 40%, but could it have been 60% or higher?”

He said the full cost of the leaks for the cloud market remains an open question.

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As Peter Thiel points out the main source of progress during the last two decades has been bits and bytes not atoms. In other words technology has moved the world. It is an area where America's great genius for development is on full display. It is also an area where regulators have little if any influence given their inability to understand the process let alone regulate its dynamic iterative progress with hopelessly outdated constraints.

Europe has little chance of competing in this arena as they are even more ensnared by lawyers and bureaucrats creating a climate antithetical to rapid innovation and destruction of the status quo.